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					    New Agrofood Marketing Strategies for
         Agricultural Cooperatives
         a case from a Dutch / European point of view


Chiang Mai, Thailand - November 30, 2004


Richard van der Maden
National Cooperative Council for agriculture and horticulture
The Netherlands
                                                                1
2
              Agriculture in The Netherlands (1)


Total area (land and water): 41.528 km2

   Agricultural use:   56%
   Water:              19%
   Woodland :          12%
   Residential area:   8%
   Infrastructure:     3%
   Recreation area:    2%


                                                   3
                Agriculture in The Netherlands (2)


Agricultural land use

   Grass land:         51%
   Arable land:        42%
   Horticulture:       6%
       Open land: 5,5%
       Glasshouses: 0,5%
   Other:              1%



                                                     4
                    Agricultural sector, some figures


   Gross domestic product (GDP): € 454 billion (2003)
   Contribution to GDP:
           Primairy sector: 2,2% (10 years ago: 4%)
           Total agricultural sector: 10%
   Agricultural employment:
           Primairy sector : 3%
           Totale agricultural sector : 10,1%
   Net agricultural export: € 20 billion
   The Netherlands are the 3rd largest exporter of agricultural products
   The Netherlands are market leader in exporting floricultural products

                                                                      5
         Cooperatives in The Netherlands



   More than 125 years of cooperative history
   More than 6.000 cooperatives
   ± 50% in the agricultural sector
   “Single purpose”
   Economic goal / marketing function
   Not a goal, but a means


                                                 6
NCR:
  National
  Cooperative
  Council
    for agriculture and
    horticulture




                          7
       Mission NCR


“Being a center of expertise and knowledge network
for board members, directors and professional
employees of cooperative enterprises.”

But also: looking after interests of
cooperatives and representation in the
political scene, science and other
sectors, both national and international




                                                     8
          Categories of cooperatives



   supply co-operatives
   marketing co-operatives
   co-operative banks
   co-operative auctions
   co-operatives providing other services



                                             9
                        Largest Dutch cooperatives (2003)

                                                                                        Number of
       Name of the cooperative              Sector         Turnover in million €
                                                                                        members
2003                                                       2003     2002 Growth              2003
(1)    Friesland Coberco Dairy Foods        Dairy          4.575    4.723      -3%          11.000
(2)    Campina                              Dairy          3.655    3.707      -1%           9.084
(3)    Best Agrifund                         Meat          2.875         -                         #
(4)    FloraHolland                     Flower auction     1.919    1.872          3%        3.996
(5)    Bloemenveiling Aalsmeer          Flower auction     1.598    1.584          1%        3.245
(6)    The Greenery                    Marketing coop.     1.570    1.515          4%        4.150
(7)    Cosun                                Sugar          1.321    1.104     20%           11.693
(8)    Cehave Landbouwbelang                Supply           751      971     -23%           6.149
(9)    Agrifirm                             Supply           660      674      -2%          16.800
(10)   Avebe                                Starch           635      683      -7%           4.338
(11)   CNB                               Flower bulbs        353      380      -7%           1.988
(12)   ABCTA                                Supply           330      329          0%        6.205
(13)   Fruitmasters                          Fruit           283      245     15%            1.030
(14)   DOC Kaas                             Dairy            273      269          1%         855
(15)   ZON Coöperatie                  Vegetable auction     262      229     15%             772
                                                                                              10
                                   Market shares of cooperatives (2002)




Fruit and vegetables                                           60 %

                     Starch
                                                                                  100 %
Products




                     Sugar                                          63 %

           Credit to farmers                                                     87 %

                      Milk                                                      85 %

                    Supply                                   54 %
                                                                                     95 %
                   Flowers

                               0    10   20   30   40   50   60      70    80   90      100

                                                   Market shares (%)

                                                                                              11
                                  In the top 20 of world dairy firms 8 are
                                  cooperatives


                     Nestle
               Dean Foods
Dairy Farmers of America
                 Fonterra
               Kraft Foods
                   Danone
                  Parmalat
                  Unilever
                   Lactalis
                      Meiji                                    Cooperative
               Arla Foods
                 Morinaga                                      Non cooperative
    Friesland Coberco DF
                  Bongrain
            Land O’Lakes
                 Campina
              Snow Brand
                   Sodiaal
   National Dairy Holdings
               Nordmilch
                              0        2     4     6      8     10         12     14


                                                          Mrd $ turnover         12
     In the top 20 of world dairy firms 8 are
     cooperatives


25
                             cooperative
                             non cooperative
20


15


10


5


0




                                                13
          Number of farms decreases


   Decrease in the number of farms 4 to 5% per year
   Each day 11 farms disappear
              x 1.000




                                                       14
Number of farms (according to size)




  Very small   Small   Average   Large


                                         15
               Number of cooperatives and turnover
               (in millions of €)



         350                  28.000
         300                  26.000
                              24.000
         250




                                       Turnover
                              22.000              Number of
Number




         200                  20.000              cooperatives
         150                  18.000              Net turnover
         100                  16.000
                              14.000
          50                  12.000
           0                  10.000
            92

            94

            96

            98

            00
         19

         19

         19

         19

         20




                    Year
                                                                 16
          The five (historical) reasons for setting up
          co-operatives


   Countervailing power
   Access to the market
   Economy of scale
   Risk management
   Social reasons
    - preservation of employment
    - development of the country
    - preservation of the countryside
                                                         17
               Primary cooperative: marketing

                                                      value added
      market
                      max price

cooperative firm
                      max price




farms of members

                   labour land    capital
                                            max ROI                 18
     Cooperative as a form of entrepreneurship



             Basic model
              members/owners
             member community
            member administration

member                              business
financing                           connection


            business operations

                 customers
                                                 19
               Auction clock



   Cooperative auctions
   Price formation: auction clock
   Flowers / plants: auction clock is still
    dominant
   Fruit / vegetables:
    auction clock → contract mediation


                                               20
        Cooperative as a form of entrepreneurship
               A typical model of a modern large cooperative
                          members/owners
                         member community
                        member administration
            member                               business
            financing                            connection


                         business operations
                          of the cooperative
                        owner administration
            equity                               purchase
            financing


 External                 business operations
financing               of the limited company

                             customers
                                                               21
Traditional marketing channel


                          retail

                        wholesale


                    farmer controlled
                   businesses (auctions)


                        producers

                                           22
         Changing market conditions



 Stronger competition
 Concentration in food retailing

   Higher quality standards


    New structures farmer controlled
    businesses are necessary
                                       23
          Dissatisfaction with the auction system




   Purchase costs too high
   Buying large quantities drives up the price
   Buyer prefers stable prices
   Specific demands are not negotionable




                                                    24
                VTN The Greenery

     Members Council VTN                                              General Meeting
                                                                      of Shareholders


 Arbitration
   Board                                      personel union         Supervisory Board
                                                                       The Greenery

             Board VTN
                                                                     Board of Directors
                                                                       The Greenery



  District      Committees   Greenery         Hagé       Greenery    Greenery     Greenery Greenery Greenery
Committees                   Operations        Int.         NL      Real Estate      UK      Int.   Specials


                                                               Committees (Self-suppliers
 Districts                                   Pmac’s
                                                                  and coldstorage)

                                           Pre-selling
                                          Committees


                                  ± 2000 growers
                                                                                                        25
        History The Greenery



1996: Merger of 9 auctions into The Greener
      → concentration of supply
1998: Take over 3 trading groups
      → concentration of sales
2000: Integration auctions and trading groups



                                                26
    Development of The Greenery


                                                 Retail UK
                                 Greenery UK


           Sales                 Greenery NL     Retail NL
G        Operations
                        Greenery International
r
                                                 Retail Int
o   Greenery
w
                      Other participating
e                         companies
r                        The Greenery
                                                  Others
s
                            Others


                                                              27
         Consequences




   Importance of auction clock reduced
   Asymmetric information problems
   Interests members become heterogeneous




                                             28
         Advantages


   Economies of scale in marketing
   Broad product portfolio
                    Value   added and control of markets




                       Value added and control of markets
                                                            29
           Disadvantages



   Large growers:
        High tariffs
        Cross-subsidization of small growers



   Innovative growers:
        Investments in marketing needed
        No direct contact with retailers




                                                30
Number of new producer organisations
(per year, 1993-2000)




                                       31
       Reasons new cooperatives




 Guarantee of product quality
 More bargaining power
 Continues supply
 Brand name




                                  32
value added




   value added   33
           Differentiation among cooperatives


   Countervailing power cooperative:
        Generic products
        Private label brand



   Specialty product cooperative:
        Vertically integrated into wholesale
        Incentives to marketing agents
              Making sales
              Long term relationship retail customers
              Information on customer needs

                                                         34
Thank you for your attention!




                                35

				
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